KBRA Releases Research – 2022 Sector Outlook—CMBS: Full Steam Ahead

NEW YORK–(BUSINESS WIRE)–#KBRA–Kroll Bond Rating Agency (KBRA) releases its outlook on the CMBS sector, highlighting key trends from 2021 and providing forecasts for issuance activity in the new year. The report examines the current lending environment and property fundamentals, as well as factors that may affect property performance in 2022. The report also reviews year-to-date (YTD) KBRA-rated CMBS conduit trends and metrics, 2021 ratings activity, and ratings surveillance expectations for the new year.

With the surge in the delta variant subsiding and COVID rates slowing, economic activity continues to increase, contributing to increasing employment levels and a recovering commercial real estate (CRE) sector. Given these trends, coupled with historically low interest rates, we are forecasting continued growth in CRE securitization issuance in the coming year. Overall, we expect the CRE securitization issuance momentum that followed the COVID recession will continue through 2022, exceeding 2021 levels.

Some key takeaways from the report include the following:

• We expect 2021 CMBS (conduits and single borrower/large loan) issuance of $105 billion, levels not seen since the peak issuance years of 2005-07. Including CRE CLOs, which will add another $44 billion of estimated issuance, total CRE securitization issuance is estimated at $149 billion for 2021, and between $150 billion and $165 billion for 2022.
• Single borrower (SB) issuance in 2021 is estimated to exceed its 2019 volume by nearly 60%, with its momentum carrying over into 2022.
• CRE CLO volume in 2021 will have a record year and for the first time surpass conduit annual volume. For 2022, we are forecasting continued growth in the sector and that it will again exceed conduit—a repeat performance.
• Conduit issuance has the potential for a meaningful percentage increase in 2022, albeit off a fairly low base.
• We expect healthy industrial and multifamily origination volume, while nonessential retail may continue to face challenges. Hotels in gateway cities, which have been more severely impacted by the pandemic, may experience some increase in loan originations, but on a selective basis. Office is likely to experience some weakening in 2022 and beyond, reflecting the ongoing shift toward hybrid work, which may weigh on demand.
• Average conduit KBRA loan-to-value (KLTV) increased to 98.2% YTD from 95% in 2020, while the KBRA Interest-Only (IO) Index broke the 70% threshold and stands at 75.8% YTD. Looking forward, we expect similar metrics, but there is potential for increased leverage.
• As CRE performance typically lags the general economy, we expect to see meaningful downgrade activity for the remainder of 2021, which could carry into 2022, although at a slower pace.

Click here to view the report.

Related Publications

• CMBS Trend Watch: October 2021
• CMBS Loan Performance Trends: October 2021
• Churn Rates in Managed CRE CLOs

Recent Default Studies

• Conduit CMBS Default and Loss Study: Default Volatility, Loss Stability
• Freddie Mac K-Series: Loan Default and Loss Study
• CRE CLO Loan Default and Loss Study

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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Larry Kay, Senior Director

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Patrick McQuinn, Senior Director

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